Reading across disciplines is one of the best ways to improve our investment acumen that I know of. At times, while reading we may not be able to understand the value of a particular piece, but it comes back in the future to help connect the dots.
I hope you enjoy the rather long weekend reading for this week.
Wishing you Season's Greetings and a very Happy New Year to you and your family.
1. 2021 - The year of the Stockdale Paradox
The Stockdale Paradox is a concept that author Jim Collins found a perfect example of in James Stockdale, former vice-presidential candidate, who, during the Vietnam War, was held captive as a prisoner of war for over seven years. He was one of the highest-ranking naval officers at the time.
During this horrific period, Stockdale was repeatedly tortured and had no reason to believe he'd make it out alive. Held in the clutches of the grim reality of his hell world, he found a way to stay alive by embracing both the harshness of his situation with a balance of healthy optimism.
Stockdale explained this idea as the following: "You must never confuse faith that you will prevail in the end — which you can never afford to lose — with the discipline to confront the most brutal facts of your current reality, whatever they might be."
In the most simplest explanation of this paradox, it's the idea of hoping for the best, but acknowledging and preparing for the worst.
https://bigthink.com/personal-growth/stockdale-paradox-confronting-reality-vital-success
2. How to make decisions - By Barack Obama
I think you should read the whole article and not just the below snippet.
In just a few short weeks on the job, I had already realized that because every tough decision came down to a probability, then certainty was an impossibility — which could leave me encumbered by the sense that I could never get it quite right. So rather than let myself get paralyzed in the quest for a perfect solution, or succumb to the temptation to just go with my gut every time, I created a sound decision-making process — one where I really listened to the experts, followed the facts, considered my goals and weighed all of that against my principles. Then, no matter how things turned out, I would at least know I had done my level best with the information in front of me.
Even in situations where you have to act relatively quickly, as was frequently the case during the financial crisis, it helps to build in time to let your thoughts marinate.
It’s not always clean and straightforward. But as my mother would say to me, “The world is complicated, Bar. That’s why it’s interesting.”
https://barackobama.medium.com/how-i-approach-the-toughest-decisions-dc1b165cdf2d
3. The power of negative thinking
We should all spend more time thinking about the prospect of failure and what we might do about it. It is a useful mental habit but it is neither easy nor enjoyable. We humans thrive on optimism. We must be careful, then, when we allow ourselves to stare steadily at the prospect of failure. Stare too long, or with eyes too wide, and we will be so paralysed with anxiety that success, too, becomes impossible. Care is also needed in the steps we take to prevent disaster. Some precautions cause more trouble than they prevent.
But just because it is hard to think productively about the risk of failure does not mean we should give up. One gain is that of contingency planning: if you anticipate possible problems, you have the opportunity to prevent them or to prepare the ideal response.
A second advantage is the possibility of rapid learning. The third advantage of thinking seriously about failure is that we may turn away from projects that are doomed from the outset.
All around us are failures — of business models, of pandemic planning, even of our democratic institutions. It is fanciful to imagine designing slip bases for everything. Still: most things fail, sooner or later. Some fail gracefully, some disgracefully. It is worth giving that some thought.
https://timharford.com/2020/11/the-power-of-negative-thinking/
4. You should not be very rich - for the sake of your children
Growing up in a family where your father’s pretty wealthy is much more complicated than growing up in a family where your father is not wealthy. When your family is not wealthy, you’ve got to really achieve something or you’re not going to get anywhere. You’re on your own.
Whereas my own children, and the children of families like mine, I think have a bit of a disadvantage. As a general rule of thumb, the people running the world are people from blue-collar families who are lower middle class. It’s rarely the case that somebody whose father was a billionaire turns out to be better than his father, becoming a multibillionaire or running the world.
https://www.nytimes.com/2020/03/12/business/david-rubenstein-carlyle-corner-office.html
5. Remove "society's soundtrack" from your ears to be successful
By the age 45, Beethoven was completely deaf. He considered suicide, one friend reported, but was held back only by the force of “moral rectitude.” It’s here that Beethoven’s story veers toward legend. Cut off from the world of sound around him, working only with musical structures dancing through his imagination, at times holding a pencil in his mouth against his piano’s soundboard to feel the consonance of his chords, Beethoven produced the best music of his career, culminating in his incomparable Ninth Symphony, a composition so daringly new that it reinvented classical musical altogether.
Beethoven’s diminished hearing limited the influence of “prevailing compositional fashions.” Whereas his earlier work was “pleasantly reminiscent” of his instructor, Josef Haydn, his later work was spectacularly innovative. “Deafness freed Beethoven as a composer because he no longer had society’s soundtrack in his ears.”
https://www.calnewport.com/blog/2021/02/05/on-beethoven-and-the-gifts-of-silence/
6. And maybe, just maybe, interest rates don’t matter as much as we all think
It may come as a shock to investors in the day-and-age of low and even negative interest rates that this growth stock orgy of Nifty Fifty blue-chip stocks in the early-1970s took place in an environment of high and rising interest rates. The 10-year yield was moving higher for much of the Go-Go Years in the 1960s and averaged more than 5% from 1962-1972. And it’s worth noting, inflation was moving ever-higher during this period as well. Interest rates were even higher during the dot-com bubble of the mid-to-late 1990s.
There are so many other factors at play that determine why investors do what they do with their money — demographics, demand, risk appetite, past experiences and a whole host of psychological and market-related dynamics.
Sure, it’s certainly possible investors could freak out because interest rates have been so low for so long.
Just because stocks have done fine when rates have risen in the past doesn’t mean it will happen in the future. But interest rate levels, in and of themselves, aren’t the sole cause of every market movement. They are just one factor among many that impact how people allocate their assets.
https://awealthofcommonsense.com/2021/02/what-if-interest-rates-dont-matter-as-much-as-we-think/
7. How to think?
Thinking means concentrating on one thing long enough to develop an idea about it. Not learning other people’s ideas, or memorizing a body of information, however much those may sometimes be useful. Developing your own ideas. In short, thinking for yourself. You simply cannot do that in bursts of 20 seconds at a time, constantly interrupted by Facebook messages or Twitter tweets, or fiddling with your iPod, or watching something on YouTube.
I find for myself that my first thought is never my best thought. My first thought is always someone else’s; it’s always what I’ve already heard about the subject, always the conventional wisdom. It’s only by concentrating, sticking to the question, being patient, letting all the parts of my mind come into play, that I arrive at an original idea. By giving my brain a chance to make associations, draw connections, take me by surprise. And often even that idea doesn’t turn out to be very good. I need time to think about it, too, to make mistakes and recognize them, to make false starts and correct them, to outlast my impulses, to defeat my desire to declare the job done and move on to the next thing.
https://fs.blog/2015/08/how-to-think/
8. Busy-ness is an excuse for lack of direction
Sometimes we say, “I just don’t have time! I’m so busy!” But that’s not true. We can always make time for important things. The problem isn’t time, it’s something else. “Lack of direction, not lack of time, is the problem. We all have twenty-four hour days.”
If you want to change your life and make progress, you have to embrace uncertainty. You can’t know everything about tomorrow. And that makes a lot of people uncomfortable. But here’s the thing. You have to get comfortable with being uncomfortable.
One of the best things you can do for yourself is to recognize when you’re making excuses. The only way to have a good life is to stay active. Work out. Enjoy your job. Find pleasure in small things. Make yourself useful. That’s how we function as human beings, and that’s what gives us joy.
https://dariusforoux.com/i-dont-have-time/
9. Control your attention instead of controlling your time
Despite the fact that we all have 24 hours a day, we realized that the way we spent those hours resulted in dramatic differences in outcomes. Person A and Person B both experience the same duration of day, but Person A may be much healthier, much wealthier, and much happier at the end of that day than Person B.
With this realization, we figured out how to hack time. How to temporarily cheat the expiration date that we all have. And it can summed up this way: Control your attention instead of controlling your time.
Time follows laws that we have no say over. An hour will be an hour, no matter what. Attention, on the other hand, can be stretched and contracted upon will. We have agency over how we use it, and it gives us a godlike ability to shift our perception of time. An hour may feel like a minute, or it may feel like a day. It all depends on how we use the hour in question.
By using our attention in innovative ways, we learned how to extract incredible value out of preset blocks of time. We used concentration as a tool to power technological progress.
https://moretothat.com/multi-tasking/
10. Mistakes while managing risk (an old but relevant article by NN Taleb)
Instead of trying to anticipate low-probability, high-impact events, we should reduce our vulnerability to them. Risk management, we believe, should be about lessening the impact of what we don’t understand—not a futile attempt to develop sophisticated techniques and stories that perpetuate our illusions of being able to understand and predict the social and economic environment.
To change the way we think about risk, we must avoid making six mistakes:
1. We think we can manage risk by predicting extreme events.
2. We are convinced that studying the past will help us manage risk.
3. We don’t listen to advice about what we shouldn’t do.
4. We assume that risk can be measured by standard deviation.
5. We don’t appreciate that what’s mathematically equivalent isn’t psychologically so.
6. We are taught that efficiency and maximizing shareholder value don’t tolerate redundancy.
No one should have a piece of the upside without a share of the downside.
https://hbr.org/2009/10/the-six-mistakes-executives-make-in-risk-management
11. The art of not selling
“Of our most costly mistakes over the years, almost all have been sell decisions. The mistake, in virtually every instance, has been selling too soon. Reflecting on these mistakes gave rise to this letter, and its title, “The Art of (Not) Selling.”
Taking a step back, our investment philosophy involves concentrating our capital in a small number of what we believe to be growing and competitively advantaged businesses. These kinds of businesses are rare and are only periodically available for purchase at attractive valuations. With that in mind, we do our best to hold on for the long term, so that our capital may compound as the businesses grow.
Holding on means resisting the temptations to sell — and there are many. We tune out politics and macroeconomics. To the surprise of many, neither valuation nor price targets play a role in our sell decisions.
To be clear, there may be times when we believe it is appropriate to sell. In these instances, it is typically because of an adverse change in the business itself.
https://www.akrecapital.com/the-art-of-not-selling/
12. Perspective on life
If you had twenty-five years left to live, how much time would you spend worrying about the daily ups and downs of the stock market?
If you had fifteen years left to live, how much time would you spend trying to buy or sell a specific stock at the perfect price?
If you had five years left to live, how much of it would you spend obsessing over financial news and its unforeseeable impact on your portfolio?
If you had one month left to live, with whom would you spend those final days? What activities would you pursue?
If you had 24 hours to live, what would you want the people who knew you to remember most?
How much time do you think you have left?
Take a guess….
Okay, let’s assume you’ve guessed right. Now what?
What do you want to do today?
https://thereformedbroker.com/2013/07/28/how-much-time-do-you-have/
No comments:
Post a Comment